Brent slips to $115 on euro zone woes, firm dollar

Singapore, February 5, 2013

Brent crude slipped towards $115 per barrel on Tuesday, giving up some of its gains from the last three weeks, on renewed euro zone worries and a slightly firmer dollar.

The outlook for oil demand dimmed as fresh political uncertainty in Spain and Italy threatened to disrupt the euro zone's efforts to resolve its debt crisis. Adding to worries, a gauge of business investments in the United States edged lower, eroding the confidence from last week's data.

"The oil markets are taking a breather after the recent gains, and are likely to consolidate around these levels as other markets are also tumbling," said Ker Chung Yang, senior investment analyst at Philips Futures Pte.

"The main concern at the moment is Europe and US economic data has also been mixed."

Brent fell 46 cents to $115.14 per barrel at 0346 GMT, after shedding nearly 1 per cent in the previous session. Brent, which hit a more than four-month high above $117 on Friday, has gained for the last three consecutive weeks.

US crude slipped 13 cents to $96.04 per barrel, after losing 1.6 per cent on Monday. It gained for the last eight straight weeks, longest winning streak since 2004.

But, trading volumes may be lower this week as major Asian markets are heading into the Chinese New Year holiday.

Asian shares eased and the euro was on the defensive as the political uncertainty in Italy and Spain prompted traders to take profits.

EURO ZONE WOES

Investors turned their focus to the euro zone as the political developments in Spain and Italy dented optimism that Europe was slowly healing from its debt crisis.

In Spain, the opposition Socialist Party called for the resignation of Prime Minister Mariano Rajoy over a corruption scandal as a poll showed the lowest support on record for his centre-right People's Party.

The scandal has provoked fury among Spaniards already disenchanted by deep recession and high unemployment, as support for the two biggest parties slumps.

"Ultimately the possibility of a Spanish election could at this stage lead to significant destabilisation of the delicate euro zone reform alliance," said Ric Spooner, chief markets analyst at CMC Markets in Sydney.

In Italy, chances of former prime minister Silvio Berlusconi regaining power raised worries about Rome's ability to fix its fiscal problems.

Berlusconi, a top candidate in this month's election, is seeing a resurgence in popularity, threatening reforms implemented by the technocrat government.

A strong dollar, partly boosted by a weak euro and a pressured Japanese yen, also weighed on oil prices.

Adding to market pressure was data from the US Commerce Department that showed overall factory orders for December were below economists' expectations.

Traders are now waiting for US crude inventory data for clues on demand from the world's top oil consumer. US commercial crude oil stockpiles were expected to have risen last week on higher imports and lower refining activity, a preliminary Reuters poll of four analysts showed on Monday.

Industry group American Petroleum Institute (API) will release its report on Tuesday while the US Department of Energy's Energy Information Administration (EIA) will issue its report on Wednesday for the week ended February 1.

Oil prices also came under pressure as sanctions-hit Iran said it was open to a US offer of direct talks on its nuclear programme and that six world powers had suggested a new round of nuclear negotiations this month. However, Iran did not commit to either proposal. – Reuters